Most FOMC participants see QE3 buying end in 2013

Federal Reserve policy makers said they will probably end their $85 billion monthly bond purchases sometime in 2013 with members divided between a mid- or end-of-year finish.

“A few members expressed the view that ongoing asset purchases would likely be warranted until about the end of 2013” while a few others specified no time frame, according to the record of the Federal Open Market Committee’s Dec. 11-12 gathering released today in Washington. “Several others thought that it would probably be appropriate to slow or stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet.”

Four years after cutting the main interest rate to near zero, policy makers are expanding their third round of so-called quantitative easing to boost economic growth and cut the jobless rate, now at 7.7 percent. In prior rounds of bond purchases, the central bank bought $2.3 trillion in securities.

The minutes show a divide among FOMC participants on how long the purchases should last. Participants who provided estimates were “approximately evenly divided” between those who said it would be appropriate to end the purchases around mid-2013 and those who said they should continue beyond that date.

Treasury Purchases

At its December meeting, the FOMC announced Treasury purchases of $45 billion a month in addition to $40 billion a month of mortgage-debt purchases begun in September, bringing the total pace of bond buying to $85 billion a month. The FOMC hadn’t set a limit on the program’s size or duration and said last month the purchases will continue “if the outlook for the labor market does not improve substantially.”

The new bond buying follows the expiration at the end of last year of Operation Twist, in which the Fed swapped about $45 billion in short-term Treasuries each month for an equal amount of long-term debt. That kept the total size of the balance sheet unchanged. The new buying will expand the Fed’s total holdings, currently at $2.91 trillion.

Officials discussed the possible risks of new bond buying, with “a number” saying that they are concerned that the purchases “could complicate the Committee’s efforts to eventually withdraw monetary policy accommodation” by causing inflation expectations to rise, according to the minutes.